America and the UK have now joined the likes of Austria, Chile and Portugal as countries with banking rankings which place them in group 3, as Standard & Poor’s Ratings Services dropped them to an even lower level than their fall from Group 1 to Group 2 about a year ago in the midst of the economic crisis.
For the U.S., Standard & Poor’s Ratings Services said the primary reason for the downgrade for the U.S. banking sector was the underwriting standards in the industry which fell apart over the last couple of years.
Called the ‘Banking Industry Country Risk Assessment,’ the United States and Britain have both fallen from the highest position of Group 1, and now can’t even hold onto a Group 2 rating, showing how weak the industry in the two western nations really are.
Much of America’s downward spiral in the banking industry, as mentioned, was in underwriting standards, which largely evaporated as the housing bubble took off and was largely neglected until it was far too late to do anything about but suffer the pain from the fallout of it.
According to the S&P, the fragmented structure of regulation in the U.S. is a major weakness in the oversight system of the U.S., and is the reason behind the erosion of underwriting standards in the industry.
To me that’s nonsense, as every bank has to have self-control and do business that makes sense, rather than be influenced by their competitors and just follow the herd as it runs off the end of the cliff.
S&P claimed it was the intense competition that cause the underwriting fiasco, but in reality it was short-term thinking and, again, following the herd instead of going about doing their business and following the mandates of their own business plan.
As for the U.K., it is the extraordinary debt held primarily by consumers which the S&P says will lead to huge credit losses going forward.
As these high leverage circumstances unwind, S&P projects it’ll result in about two years of loan losses in the U.K., which will also have a negative impact on expanding business for British banks.
The S&P expects the banking industry in the U.K. to focus on low risk activities, which should help them improve their ratings whenever a real and sustainable economic recovery emerges.
Both the U.S. and U.K. banking systems performed poorly in contrast to other mature economies.
